Self-funded group medical plans rely on PPO network agreements to save money on claims. To access purported network savings, the Plan Sponsor pays a PPO management fee, or access fee, usually around $4-5 pepm, or more. Recently, third party administrators and carriers are beginning to bump those fees higher, as high as $12.50 pepm in some cases.
So, what does a self-funded group medical plan really get, overall, in the way of claim savings by utilizing a PPO network? For the privilage of paying a management fee, they get “discounts” off billed charges. And, the discounts appear to be significant.
There is a good reason for that – bill high, give a whopping discount, and still bill high. Seems to make everyone happy. “Boy, did I get a good deal! The doctor charged $750 and my PPO network repriced it down to $200! I saved $550!”
Or, “my hospital bill was $87,000, but ABC Insurance Company repriced it down to $54,300! Thank you insurance company!”
So, why pay a PPO management fee when you can simply pay providers what they get anyway?
Here is a redacted email we sent this morning to a third party administrator:
XXXXXXX does not want to pay the increased PPO access fee. Instead, they are considering dropping the PPO network and pay physician U&C at the 90th percentile, and pay hospitals cash at 65% of billed charges. The end result, based on emperical data specific to this case, as far as claim dollars expended would be no worse, or better, than paying $18,225 in annual PPO access fees for the privilage of paying about the same in real claim dollars.
Common Sense tells us that physicians will take U&C at the 90th percentile all day long and hospitals will take 65% of billed charges all day long too. XXXXXXX still ends up paying more than they should (no more than they would if they continued with the PPO contract), but at least they save the ridiculous PPO management fees of $18,225.
Editor’s Note: Common sense is defined by Merriam-Webster as, “sound and prudent judgement based on a simple perception of the situation or facts.”[
Good post. I am seeing more and more of this in the market. I have several groups that have dropped their PPO network and are paying U&C on the physician side and paying hospitals Medicare +25%. We almost never see any balance billing issues on the physician side, and less than 20% of our hospital claims are balanced billed to the patient. When that happens we negotiate within certain parameters and the balance billing issue goes away.
